Medicaid managed care program doesn’t reduce fees, report says

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Insurers that contract with the state to manage the care of low-income Medicaid patients are expected to save money, in part by negotiating lower prices with health providers. But a new report by the state inspector general found that the plans pay higher fees to many hospitals and doctors than the traditional Medicaid program pays for the same services.

Hospitals that dominate their region or have a highly recognizable name and strong reputation were paid the most, up to 2.5 times the standard Medicaid rate, the investigation found.

“We are talking about a lot of money, especially a lot of money that’s being paid to select providers with geographical and other market power, not to others,” said Gregory W. Sullivan, whose last day as ­inspector general is Friday.

The report did not examine whether the managed care plans, which rely on case managers to prevent unnecessary care and help people manage chronic illnesses, save money over the long term. It focuses instead on shorter-term variation in payments to health care providers.

Massachusetts is one of many states that have moved more and more Medicaid ­enrollees into managed care plans in the past two decades, trying to improve coordination of care and lower costs. Most enrollees in MassHealth, the state Medicaid program, can choose one of two tracks of coverage. In the traditional plan, they have a primary care doctor and the flexibility to see any physician who accepts Medicaid. The state sets payment rates for providers who treat this group, about 350,000 people last year, by regulation.

Participants can also enroll in one of five managed care plans, each of which negotiates its own contracts with a network of providers: Boston Medical Center HealthNet Plan, Fallon Community Health Plan, Health New England, Neighborhood Health Plan, and Network Health.

Sullivan said these plans, which covered 490,000 people last year, fear losing members to competitors if they exclude popular hospitals and doctors. That undermines the plans’ ­leverage in negotiations, allowing these hospitals and doctors to charge higher rates.

In the report, Sullivan’s office­ recommended that the state use its contracts with the plans to cap payments to hospitals at 5 percent above the state-set rate and to doctors at 10 percent above that rate.

The plans renegotiated with providers last year to lower prices, but it is not clear whether the changes reduced disparities in how much they collect. The trade group representing the plans criticized the report, saying it does not present a fair picture of their benefits.

The insurers “bring enormous value to the state and enormous value to the Medicaid subscribers,” said Lora ­Pellegrini, chief executive of the Massachusetts Association of Health Plans. She has advocated for the state to address the influence of providers’ market power on prices and said she was not surprised by the variation cited in the report.

The inspector general pointed to numerous examples of disparities in what hospitals were paid for their services to Medicaid patients in 2011. ­Insurers paid just 3 percent more than the state-set rates for outpatient care at Cambridge Hospital, which is overshadowed by the Boston teaching hospitals across the river. Meanwhile, HealthAlliance Hospital, the only hospital in Fitchburg and part of the ­UMass Memorial Health Care system, and Harvard-affiliated Brigham and Women’s Hospital, which is part of the Partners HealthCare system, were paid more than twice the state rate by the managed care plans, the report said.

“This is kind of an outing of what’s going on behind the black curtain,” Sullivan said.

Spokeswoman Mary Lourdes Burke said Health­Alliance has worked with the plans to reduce 2012 rates by about 17 percent from the prior year. Such efforts to curb prices across the health care industry are not fully reflected in the ­report, Partners spokesman Rich Copp said. He and other providers took issue with the comparison to state-regulated Medicaid payments, which they said are far below what it costs to care for ­patients, so “all hospitals suffer.” The state has cut Medicaid rates repeatedly in the past five years.

“Massachusetts hospitals have an unlimited willingness to support the state’s efforts to maintain affordable coverage and reform the health care system, but they do not have unlimited resources to subsidize the state Medicaid program,” the Massachusetts Hospital ­Association said in a statement.

Thomas Traylor, vice president of government programs at Boston Medical Center, said some providers may need to make up the losses they take on state payments through the contracts they have with managed care organizations. The hospital owns HealthNet and represents about 10 percent of the plan’s business, Traylor said. When the plan’s enrollees visit Boston Medical Center, the hospital is paid 44 percent more than the state rate, accord­ing to the report.

Traylor said cutting Medicaid payments by hundreds of millions of dollars “would cause havoc in the system.”

Variation among payments to doctors also was dramatic. The average payment was about 33 percent more than the state-set rate. Physicians connected to Partners received 55 percent more than the state rate. Physicians affiliated with Boston Children’s Hospital were paid 160 percent more than the state rates, the report said.

Physicians with the Greater Lawrence Family Health Center received just 7 percent more than the state rate. The chief medical officer, Dr. Joseph Gravel, said the health care system wrongly rewards major teaching hospitals with strong brands. But, he said, the reaction should not be simply to cut payments to those that get more.

The Massachusetts plans ­entered new contracts with the state for fiscal year 2012, which ends in September, that ­assumed hospitals would be paid no more than 5 percent more than the state-set rate and doctors would receive no more than an extra 10 percent. Still, the higher rates seem to have persisted, according to the ­inspector general’s report, which projects that the plans this fiscal year will pay providers $260 million more, or about 26 percent, than would have been paid under state-set rates.

Alec Loftus, a spokesman for the Medicaid program, said the report shows the state saved $67 million through renegotiations last year and more savings are expected because of passage of cost-control legislation this week.